Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
A junior accountant deducts TDS on the GST-inclusive total or forgets the threshold, so the vendor is under-paid or the deduction is short.
Identify the payment type, find the rate, test the threshold, set the base before GST where shown separately, then compute TDS and net payable.
A rate and threshold table by section or payment code, a running total per vendor per year, and the invoice split between value and GST.
Correct TDS and net payment on every invoice, with no over-deduction on GST.
TDS equals the rate for that payment type multiplied by the invoice value before GST, where GST is shown separately on the invoice. The vendor is paid the invoice total less the TDS.
Worked example
A consultant’s invoice:
| Line | Amount |
|---|---|
| Professional fee | ₹1,00,000 |
| GST at 18 percent | ₹18,000 |
| Invoice total | ₹1,18,000 |
At an assumed 10 percent TDS:
- Base: ₹1,00,000 (before GST)
- TDS: ₹1,00,000 × 10 percent = ₹10,000
- Pay the vendor: ₹1,18,000 − ₹10,000 = ₹1,08,000
The common error is deducting on ₹1,18,000, which gives ₹11,800. That over-deducts ₹1,800, and the vendor has to wait for their tax return to get it back.
The five-step method
| Step | Question | In the example |
|---|---|---|
| 1. Identify the payment type | Contract work, professional fee, rent, commission? | Professional fee |
| 2. Find the rate | What does the section or payment code say? | 10 percent (payment code 1027 from April 2026) |
| 3. Test the threshold | Has the bill or the year’s total crossed the limit? | Yes, over ₹50,000 for the year |
| 4. Set the base | Value before GST, if GST is shown separately | ₹1,00,000 |
| 5. Compute TDS and net payable | Rate × base; invoice total − TDS | ₹10,000; ₹1,08,000 |
Is TDS on the amount with GST or without it?
Without, where GST is shown separately. The CBDT clarified this in Circular 23 of 2017. If the invoice shows one lump sum with no GST split, the base is usually the full amount.
How do thresholds affect the first invoices of the year?
Each section has its own limit. For professional fees under Section 194J the annual limit is ₹50,000 from 1 April 2025. For contractor payments under Section 194C, TDS applies when a single bill exceeds ₹30,000 or the year’s total exceeds ₹1,00,000.
Suppose a contractor (a company, so 2 percent) sends three bills of ₹25,000, ₹25,000 and ₹60,000, all before GST.
- Bills 1 and 2: each under ₹30,000 and total ₹50,000, so no TDS yet.
- Bill 3: ₹60,000 is over ₹30,000 and the total is now ₹1,10,000, over ₹1,00,000. TDS is due on the whole ₹1,10,000: 2 percent is ₹2,200, all deducted from bill 3.
So the vendor receives ₹60,000 − ₹2,200 = ₹57,800 (plus GST) on bill 3.
What to read next
- Next in the series: Why does my TDS payable balance not match what I deposited?
- TDS on the GST component
- Invoice matching with TDS: net vs gross
Record the entry and deposit the TDS by the 7th of next month. TransactIG reconciles TDS so over- and under-deductions surface before the return. See TDS reconciliation software and reconciliation software for India.